In the chapter “The Rich Invent Money”, he gives an example of buying a house for $20,000 and selling it on a note for $60,000. I assume he has a mortgage from a lender for the $20,000. My question is how does the note work with the mortgage?Do the buyers pay him on the note and he pays the lender and who actually owns the property?
I am assuming in this example that he does not have a loan on this property.
@Gary Landon if there is a note on the property then he is doing a wrap.. and you make the delta between the two... CA. for example has a specific deed of trust for the called an all inclusive Deed of Trust... One must be very careful as the end buyer in these transactions. many times its good to have a note service company handle the paying of the underlying so there is no issue with the buyer paying the seller and the seller NOT paying the underlying or first mortgage... it gets more complicated but thats the basis of doing what is called a wrap or sandwich or all inclusive or simply a second DT or mortgage. depends on what part of the country your in... the basics are the same though.
I believe it said that the house cost $20,000 but he had $0 of his own money invested. I assume that there is another loan out in this example?
Jay, Thanks for the information. To protect the end buyer, will the lender accept payment directly and then pay the seller? I guess it would depend on the lender and if there was a due on sale clause. However if done properly, this seems like it could be a win win situation.
We have done the same several times. I usually don't sell my rentals, but for example, we bought a house from an older gentleman for cash(from my line of credit), put a sign in the yard, FSBO, sold it on payments within a week, rent to own, at a gain of $17,500, with a down payment of $10,000, and the balance 240 months payments 12% interest. A creation of wealth.
you buy the property for 30k put 10k down and the seller takes back a first ... for 20k then you resell the home for 60k as in your example.. and the new buyer puts 10k down and you craeate either an all inclusive Deed of Trust ( California specific document) or simply a second DT or mortgage for 50k... payments on the first are 200... payments on the second from your buyer are 500... you keep the delta... of 300..00 this is called a sandwich, or a wrap etc. YOU are responsible for paying the first...
The reason the All inclusive works so well is that if for some reason you don't pay the first and they file an NOD your buyer is notified as the all inclusive has a NOD notification clause. Then your buyer has the right to make the payments direct and foreclose your position out.. and buy the property for the amount of the underlying Note.. Every state has a different twist on it. of course
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